Political economy and development

Chang plugs his new book

May 1, 2014

Another week, another Ha-Joon Chang book. He has another good piece in the Guardian (h/t Richard Murphy):

Contrary to what professional economists will typically tell you, economics is not a science. All economic theories have underlying political and ethical assumptions, which make it impossible to prove them right or wrong in the way we can with theories in physics or chemistry. This is why there are a dozen or so schools in economics, with their respective strengths and weaknesses, with three varieties for free-market economics alone – classical, neoclassical, and the Austrian.

Given this, it is entirely possible for people who are not professional economists to have sound judgments on economic issues, based on some knowledge of key economic theories and appreciation of the political and ethical assumptions underlying various theories. Very often, the judgments by ordinary citizens may be better than those by professional economists, being more rooted in reality and less narrowly focused.

He’s right that all economic theories have hidden political and ethical assumptions which give economics a different status to physics or chemistry. But i’d take slight issue with the statement that economics isn’t a science. It’s certainly a different sort of science, but done properly it can still be about establishing provisional truths about the world, even if these findings are open and subject to periodic revision. Not that I suspect Change really thinks this, but totally disassociating economics with the word science risks postmodern relativism in which anything goes. In Anthony Giddens’s words we might as well “salute Nietszche and go our separate ways.”

An economics that was worthwhile would mean at least recognising the existence of different schools of thought, the provisional nature of economic knowledge, and the existence of different methods. For example it would be no good saying that on the one hand Austrian economists reject the validity of production statistics because they agglomerate incompatible scraps of information but on the other hand neoclassicals value gross domestic product as a measure of annual economic output, but neither is right; they’re just different. No, some overarching means of assessing the validity of each school is needed, even if this means of assessment is not considered final or categorical. It is possible to arrive at temporary answers, especially when underlying assumptions are made clear and findings left open to debate. This is surely what social science is about?

Chang is right, of course, that we’re currently far from this situation. Most economic thought is presented as The Truth purveyed by experts. The model to which economists really aspire is social physics, even if they say otherwise. They don’t make their assumptions clear. Their incredible levels of specialisation leave them less qualified to make judgements about the macro economy than ordinary informed people.

I had an interesting exchange on Twitter in which Danny Quah of the LSE revealed that Nobel prizewinner Christopher Pissarides, a renowned macroeconomist, when attending the opening of the LSE’s new Southeast Asia centre revealed he didn’t know that Malaysia had in 1997 rejected International Monetary Fund advice to abolish capital controls.

@DannyQuah Do I understand this correctly? Pissarides *didn’t know* about Malaysia’s capital controls and 1997 resistance to IMF programme?

Malaysia’s intransigence was one of the headline-making global events of the 1990s, attracting comment from the likes of Paul Krugman, George Soros and all manner of dismal-science superstars. It marked a turning point in the Fund’s attitude toward capital controls. When I interviewed Krugman in 2000 he said he was bored of the question because he’d been asked about it too many times (I am no Jeremy Paxman — I should have asked something more original).

I find it incredible that a Nobel macroeconomist who now sees fit to comment on things like capital controls should have been unaware of Malaysia’s experience. It only supports Chang’s point about over-specialisation. Loads of informed lay people knew the intricate details and would be better placed to comment than Pissarides, whose best-known work is on unemployment, and who appears not to have followed global economic events.

Pissarides’s lack of awareness in itself doesn’t prove whether or not economics is a science, but it is typical of mainstream academic economists, who tend to be so specialised that they aren’t particularly useful outside their own narrow field. The democratisation of economics, its accommodation of politics and power, and the injection of a healthy dose of humility would go along way to making it more scientific.